Best of times, worst of times… US consumer spending may be finally hitting the brakes. Last month, the Personal Consumption Expenditure index (PCE) grew a lower-than-expected 0.1% — the smallest gain since 2020. The PCE is the Fed’s favored way to gauge inflation because it covers a wider range of spending categories than the Consumer Price Index (which tracks prices for a fixed basket of items, like eggs and gas). The PCE gets its data straight from businesses, so it can more accurately reflect spending trends (for example, if shoppers are trading down to store-brand chips from pricier Lays).
YOLO spending is still going strong… The slowdown in spending growth comes as Americans sit on record debt levels. But while consumers may be trading down in some areas, they still aren’t skimping on experiences: thanks to revenge travel, airlines like United and Delta have raked in record revenue and expect demand to continue. Live Nation has seen concert sales soar as Americans shell out thousands to see Beyoncé and T. Swift. And back-to-school spending is expected to reach a record $41.4B this year, while Halloween splurges could be the biggest yet.
Consumption is at a crossroads… On one hand, wages are rising faster than prices, yet inflation is cooling, which encourages open wallets. Plus, since the housing market is so tight, some Americans are forgoing saving for a home and using the extra cash to treat themselves instead. But spending optimism has been tempered by soaring debt, dwindling savings, and student-loan payments restarting.